Financial regulators in Denmark have issued an official order to Saxo Bank, a local investment bank, to dispose of its cryptocurrency holdings, stating that holding cryptocurrency to hedge against trading risks is outside the legal business area of financial institutions. The Danish Financial Supervisory Authority (DFSA) cited section 24 of Denmark’s Financial Business Act to support its decision.
According to the DFSA, Saxo Bank offers cryptocurrency trading opportunities to its customers through its platform. The bank also provides various crypto-linked exchange-traded funds and exchange-traded notes, allowing customers to speculate on crypto assets. Additionally, Saxo Bank has its own portfolio of cryptocurrencies, which it holds as a hedge to offset the market risk associated with its crypto products.
The DFSA referred to Annex 1 of the Financial Business Act, stating that trading in crypto-assets does not fall under the legal business area of financial institutions in Denmark. Therefore, Saxo Bank has been ordered to dispose of its crypto holdings.
The DFSA also mentioned the upcoming Europe’s Markets in Crypto Assets (MiCA) regulation, which will take effect in December 2024. It clarified that the crypto trading area remains unregulated until then.
However, the order from the DFSA does not require Saxo Bank to stop its crypto offering. Saxo Bank’s global communications head, Lasse Lilholt, confirmed that the decision of the Financial Supervisory Authority will be carefully evaluated, but it will have a limited impact on the bank’s business. Saxo Bank customers do not actually own the underlying cryptocurrencies, but instead, they purchase financial products that track cryptocurrency prices.
Saxo Bank holds a small portfolio of cryptocurrencies solely for hedging purposes, and the majority of its exposure is mitigated through exchange-traded and cleared products. Therefore, the DFSA’s decision is not expected to cause significant changes for customers.
It is worth noting that the regulatory landscape for cryptocurrencies in Denmark has been uncertain. Some legal sources suggest that cryptocurrencies like Bitcoin do not fall under any category of financial services in Denmark and therefore are not within the jurisdiction of the DFSA.
However, despite this uncertainty, the DFSA authorized a Danish crypto-related startup called Januar to conduct business in 30 European Economic Area markets in April 2023. Additionally, the Supreme Court of Denmark made two judgments in March on whether the sale of Bitcoin under specific circumstances qualifies as a taxable event.
The DFSA’s order to Saxo Bank highlights the ongoing challenges and varying regulatory approaches towards cryptocurrency service providers globally. With the introduction of MiCA in 2024, the regulatory framework for cryptocurrencies in Denmark is expected to become more defined and comprehensive.